Category Archives: Manufacturing

A Great Post on Home-Shoring on the Manufacturing Innovation Blog

The Manufacturing Innovation Blog recently published a great post on why you should be HomeShoring. And while they are choosing to use the less precise term of re-shoring, they are making the same point that SI has been trying to make for six years – for many of you, it’s probably time to bring manufacturing home (or at least back to North America as a starting point).

Asia is not the low-cast locale that it used to be. When you factor in:

  • steadily (and sometimes rapidly) increasing labour costs
    with senior managers in several emerging markets now earning compensation that matches or exceeds compensation for the same position in the Americas and Europe
  • the high costs related to supply disruptions
    as it can easily take 45 days to replace a lost shipment or correct a stock-out
  • quality and rework problems
    that are very expensive to fix when the defect isn’t noticed until the first shipment arrives in the Americas
  • intellectual property theft that is very common
    and the cheap copycats that sometimes hit the Asian market before your own product is ready
  • the costs of dealing with the bureaucracy and red tape associated with foreign (and even local) governments when off-shoring
  • steadily increasing transportation costs
    as the price of oil continues to rise, the price of insurance continues to rise as piracy increases, and carrier profit margins continue to rise as demand rises and supply stays steady
  • the cost of communication and management
    as regular travel and site visits are required, and airfare keeps going up
  • steadily rising utility costs
    as demand for energy is soaring in the developing world
  • the cost of non-patriotism
    and the inability to sell to governments and other agencies that have to “Buy American” (and frown on companies that produce all their wares overseas)
  • the other hidden costs that

the reality is that, when you do the Total Cost of Ownership equation, and also factor in the productivity you can get in a modern manufacturing plant with lean processes and a well educated workforce, it’s often cheaper to produce the product at home in America! Unless you’re talking Fortune 100 economies like scale, and are ordering millions of units like Apple does, you’re not getting Foxconn economies of scale and the 10% to 20% savings that lured you over there a decade ago just aren’t there anymore.

It’s time for North America to rebuild and strengthen its manufacturing role as the world’s manufacturing leader. The industrial revolution and the manufacturing era that followed is what allowed America to overtake Britain as the number one country in the world (in terms of GDP). I truly believe that if America does not immediately embark down the manufacturing path again, China will overtake America by the end of the decade. While it might be inevitable that someday China will overtake the United States of America as the number one producer of GDP with four times the population size and a mission to reclaim their former glory, there’s no reason that such a rise to prominence can’t be delayed for a couple of decades. But that will only happen if America focuses on what made it great, not pointless political agendas and filibustering in the Senate.

WOW! Finally a Decent Piece on Higher Education!

A recent press release over on Brookings.edu that summarizes a recent paper by Robert D. Atkinson and Stephen Ezell, who are calling on Congress to “Support the Designation of 20 ‘U.S. Manufacturing Universities”, is a breath of fresh air where the debate on (higher) education is concerned.

Despite what some academics might think, including Mr. McAfee who published this unbelievable post on the HBR blog site calling for us to “stop requiring college degrees” when every single job that doesn’t involve serving food is going more high tech every day, we need more college education, not less. The problems we have are a) it costs too damn much (which should not be the case because an educated society is a productive and innovative society, and if anything is going to be subsidized, it should be education) and b) we are giving too many people the wrong education. As those who follow me on Twitter will know (as I try to avoid the crushing weight of the fail whale), I do not lament the fact that “Liberal Arts Colleges are Disappearing”. How many English literature and classics PhDs do we need anyway? (The answer is not that many.) As long as we save the historians, so we don’t repeat the mistakes of the (recent) past, it wouldn’t hurt to have the number of literature and the philosawfical majors approaching extinction levels compared to the counts for science and engineering majors. (I’m not saying we shouldn’t study these disciplines, as we all should study them to a degree, but graduating tens of thousands of students when there are only so many teaching jobs opening every year is just a waste of money and potential all around.)

We need people focussed on science and technology and other pursuits that benefit the economy and them, especially where jobs are concerned. And to this point, after a decent grounding in the basic theory has been conveyed, we need programs with a strange focus on the practical. Even in Engineering, we only need so many designers — after that, we need manufacturers and maintainers. We need people with a grounding in the practical. Now, I know the academic among you will argue that university is about improving the mind and increasing the mental potential of the individual, the real world be damned, but lets face the fact that, right now, for the most part, we have no trade schools, we have no apprenticeships, and we have, in many industries, no other way of identifying someone who is likely to be intelligent and educated enough to do a job. The College / University degree is the passport to a job in today’s world, and its about time we had programs that were appropriate.

So the suggestion by Atkinson and Ezell that Congress should establish an initiative to designate 20 institutions of higher education as “U.S. Manufacturing Universities” as part of a needed push to strengthen the position of the United States in the increasingly innovation-driven global economy is one of the best, and most logical, suggestions I’ve seen in a long time. And since we are not going to return to the way of apprenticeship (which is the answer), let’s finally create the outputs that industry wants from Colleges and Universities. This doesn’t mean that all programs have to be practical, just that there should be practical options where they are needed and required by today’s society. It just makes sense. (So, as you all know, you can bet that Congress won’t do it. Especially since this would mean raising taxes to beyond the point necessary to prevent the budget reductions that are coming into effect that could cost America up to 1 Million jobs because the Republicans refuse to allow the rich to pay their fare share of taxes. But still, it’s nice to know that somewhere there are still some level, practical heads.)

All Hail the Old China!

And by that I mean Mexico! I was thrilled to see this recent opinion piece in the New York times on The Tijuana Connection, a Template for Growth that said, for many (North) American manufacturers that need to beat Chinese Rivals that Mexico is the New China because it shows that a new generation of entrepreneurs are discovering what a few old greybeards have known all along — Mexico is cheap, efficient, and full of potential (like the 115,000 engineering students it graduates each year, which, per capita, is triple the U.S. graduate count).

Plus, it has little known secrets like Tijuana which, in addition to its reputation of party central is also electronics central — with a growing number of North American, European and Asian (including Sony and Samsung) companies opening and running factories that assemble consumer goods (such as TVs and Computers), medical devices, and even aerospace assemblies. And its prime location, just across the border from San Diego, means that an American company with an engineering office in San Diego can quickly and easily supervise production in the Mexican factory as needed, as it’s a quick drive across the border (for business people in the fast-track lane). (Plus, as the article notes, there is Juárez where Foxconn has a factory; Querétaro, which builds GM engines; and Boeing factories.)

But the sad thing is that the beardless don’t remember that this is not a new Mexico — this is the old Mexico finally being recognized for the value it has always provided. There’s a reason the outsourced manufacturing craze started with Mexico and will return to Mexico — labour costs are relatively cheap, capability is high, logistics and (remote) management costs are extremely affordable and manageable, English is relatively common (and fluency is at least 7 times that of China), and culture is a close fit.

Si quieres dinero y fama, que no te agarre el sol en la cama.

Don’t Forget the Recovery When Designing For Recovery!

In our recent post on how supplier circles are just loopy, we noted that the only difference between what the McKinsey article on “Manufacturing Resource Productivity” is preaching and what the environmentalists have been preaching for years is that the reduce, reuse, and recycle mantra should pervade the supply chain end to end and influence new business models that improve recovery, create new sources of supply, optimize production, and increase revenues instead of being an afterthought. In essence, as we pointed out, McKinsey is jumping on the Design for Recycle bandwagon that SI and a few other (lonely) thought leaders have been pulling for years (and years and years), but changing the language to make it look like it’s their idea (as all good consultants do — but at least they are not stealing your watch to tell you the time).

Design for Recycle, which is also known as Design for Recovery, is very important as the supply of more and more rare earth minerals become scarcer and scarcer and the most abundant source is in products (going) in (to) the hands of the consumers, who will eventually finish with the product, and without an alternative, toss it in the trash — where it may end up wasted in a landfill! But this isn’t the only reason you want your products back. Even when the initial customer is done with them, most of your products, or at least components thereof, still possess value and can still be refurbished and resold at a profit, even if they are not working. The obvious example is the iPhone 4S still has value when the customer upgrades to the iPhone 5. A less obvious example is that the laptop still has value if only the memory needs to be replaced. If the laptop can be resold for $300 with only $20 for new memory chips and $30 of labour, then recovering it at a cost of $30 of shipping and a trade-in credit of $100 should be a no-brainer as that leaves you with 40% profit — which is probably a heck of a lot more than what you made initially when prices were slashed to be competitive with your most aggressive competitor! And then there’s the fact that many jurisdictions are enacting legislation regarding returns management and proper disposal. If you don’t have a valid recovery mechanism to ensure customers have an option for proper disposal, in some of these jurisdictions, you could be fined if your customer, lacking such an option, decides to throw the product in the trash.

But these aren’t the only reasons to plan for recovery. As pointed out in a recent article on “reclaiming value through reverse logistics”, a retailer’s returns policy is a critical decision making factor in a customer’s purchase. Specifically, 63% of online shoppers look at the policy before making a purchase, and 48% will shop more often with a retailer that offers a lenient, easy-to-understand return policy. And while this is a retailer, and not manufacturer, statistic, it does indicate the significance of returns. Furthermore, the reality is that if you have a good return management process that is headache-and-hassle free for the retailer, then the retailer is likely to offer the customer a headache-and-hassle free policy as it knows it doesn’t have to worry about getting stuck with unwanted or defective products. Putting your customer first helps your customer put the end consumer first, which, according to the UPS commissioned study quoted in the article, increases the chances that they will buy from the retailer who is your customer. Plus, 32% of customers have indicated that they will focus less on price and more on quality of service if given a lenient, easy-to-understand returns policy. That’s how you maximize revenue and profit!

Five Common Sense Ways to Power Manufacturing Growth in a Down Economy

Last summer, Industry Week ran a short article on Ways to Power Manufacturing Growth in a Down Economy that you might have overlooked, as it was short and ran during peak vacation season, but it is quite important nonetheless. This article provided some easy ways to squeeze more value out of your operations.

  • Reduce Market Uncertainty
    There are two big uncertainties that most manufacturers have to deal with: customer demand and supply availability. In addition, raw material costs can often be unpredictable. But all of this uncertainty can be greatly reduced with long-term contracts. As the article points out, demand certainty at reduced margins is often better than demand uncertainty, especially since innovation and lean improvements can often reduce costs year-over-year.
  • Put Safety First
    Accidents cause downtime and result in reduced yields, both of which increase operating cost and eat up margins. Keeping lines up and yields constant is the best way to reign in costs and get the most out of every dollar.
  • Near-Source
    Reduce shipping costs and gain more control over manufacturing processes and costs by using suppliers closer to your manufacturing facility. It’s a lot easier to work out a problem with a supplier in your own state than with a supplier in a different country, as you can just jump in the car and visit the supplier’s location when a face-to-face meeting is needed to resolve an escalating situation.
  • Redefine Value-Add using Customer Value
    Find out precisely what customers want and eliminate all unnecessary features and functions that are not desired by the end customer. It’s not value-add unless the customer wants it. If the customer doesn’t want built-in auto-correct software that messes up 20% of the time in their smartphone, don’t waste money delivering it to them!
  • Encourage Innovation
    Empower, motivate, and reward employees who identify product and process improvements throughout the organization that increase quality or product value (to the end customer) while holding steady or decreasing costs.

The point is that, even if demand is down, margin can still be up.